Crypto native benchmark criteria rule now!
A new type of crypto index tracker
Many crypto indices are based on market capitalization of coins, sometimes with a cap for the largest ones. A new ETF launched by digital assets specialist, Valour, in March 2023, VANILLA BLUE CHIP PORTFOLIO ETP, uses a new index based on a unique concept that may appeal more to crypto “bros”.
A new index, STOXX® Digital Asset Blue Chip X index, launched in December 2023, instead uses crypto native criteria, such as scope of adoption, size of developer community, fees paid by users and age of protocol. These qualities resonate well with the vision of those who view crypto as the foundation of a new, more democratic, inclusive and innovative, global financial ecosystem.
The Index can selects from five sectors in the Bitcoin Suisse Global Crypto Taxonomy (GCT) : Cryptocurrencies; General Purpose Smart Contract Platforms; Decentralized Finance (DeFi); Utility and Culture (though currently the Culture category appears to be absent from the index as of the March 2024 review). The tokens also need to be exchange priced.
A “spoiler alert” is that the largest two components of this index are also the largest two cryptocurrencies, Bitcoin and Ethereum, (both capped at 30%).
The third largest unit at 11.71% is “Payment Coin”, Ripple.
Four others are “Layer 1 Smart Contract Platforms”: Cardano, Avalanche, TRON, Polygon, and Cosmos.
There is one “Data” coin, Chainlink, in the utility sector.
Finally, there is a “Credit” coin, Aave, in the DeFi (Decentralised Finance) sector (incidentally, Valour is owned by Nasdaq listed DeFi Technologies Inc).
Five of these (Bitcoin, Ethereum, Ripple, Cardano and Avalanche) overlap with a pure market cap based top ten ranking, which would also include USD Coin, Tether, BNP, Solana, Dogecoin.
Over time it is possible that the STOXX index could further diverge from market cap weights when it gets reviewed. If the crypto native criteria turn out to be good leading indicators of the next big coin, this index might become more forward-looking than those based wholly or mainly on market capitalisation.
In the meantime, investors who are confident about picking individual winners and who immediately want more exposure to some of the up and coming cryptocurrencies can find dedicated ETFs. Valour itself recently launched XRP and there is also AXRP from 21 Shares, which additionally has a wide range of single coin products tracking Cardano, Avalanche, Polygon, Cosmos, Chainlink and Aave ETFs, while Van Eck has a TRON tracker.
